Information is primarily obtained from the case study and from publicly available news reports and articles.

KEY QUESTIONS

1. What were the key factors behind Google’s early success?

A number of key factors contributed to Google’s early success. Google had unassailable competitive advantage in the form of PageRank algorithm that can efficiently index web pages and delivers highly relevant searches to users. It avoided competing head to head with yahoo, etc by choosing not to diversify to portal positioning. Instead, Google focuses on developing its strategic assets (Makides, 1997) and licensing its search technologies to Yahoo and other 3rd party sites.

Operating under a duopoly market structure (Lewis, 1999) and under an expanding market, Google encountered less competitive resistance. Staying true to its competitive advantage and focusing on its search services, Google grew quickly.

Google was able to adopt a very competitive pricing strategy in paid listing and was offering a lower CPC and higher revenue split than its competitions. And by ensuring a higher click through rate, Google became the search engine of choice for both the paid-listers and users alike and was able to capture cross-side networks effect. (Eisenmann, 2006)

Google was able to translate its reach and pervasiveness of its search engine to paid listings revenue. Google’s reach also enables it to avoid the traditional overheads required for advertizing to make itself and its services known.

Google’s also seek out new market space (Kim, 1999) and the move to provide free unlimited e-mail web storage also greatly built its base of loyal customers and good-will.

Google’s corporate values, corporate culture and service offering was well “fitted” for the industry. By fostering and encouraging a culture of innovation, Google was able to reap the benefits of new monetizing new ideas that came out.

2. Should Google pay AOL more than 100% of the revenue generated from AOL searches? How did Microsoft’s maximum affordable bid for AOL’s search traffic compare with Google’s?

a.Given that Google is already sharing 85% to 90% of the ad-revenue collected with AOL the question of paying more than 100% of the revenue generated does not seemed like a significant one especially in the light of Google paying way over the odds for 5% of AOL shares.

While the one-off decision by Google to pay a high premium for AOL’s share can be justified from the perspective of a defensive play to ward off a possible entry by Microsoft a very dangerous competitor with deep pockets, entering a contract to pay over 100% of the ad-revenue is not justifiable even though there may be justifications with regards to cross-subsiding and the risk of higher acquisition/conversion cost.

Paying more than 100% may not meant much in term dollars but the resultant loss of bargaining leverage may be too high a price to pay.

b.With hindsight, given that Microsoft bid failed it could be speculated that the bid is inferior to Google’s. If so, did Microsoft misread the potential of the AOL deal to make serious in-roads into the search market? Google on the hand saw the need to snuff out Microsoft’s foray into its lucrative market.

3. In addition to enhancing its core search business, should Google diversify into new arena? Which would you recommend: 1) building a full pledged portal like yahoo’s 2) targeting Microsoft’s desktop hegemony 3) becoming e-commerce intermediary like e-Bay?

It’s interesting that while Schmidt was deflecting the question that Google might create its own web-based operating system, he added that “there was a great deal of strategic leverage for Google in building an ecosystem around content and...

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